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Old 06-04-2008, 08:31 AM   #41
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Quote:

Heck you could have lime green pets.

Cant do that in a rental.
Tenants get the pets too ... try evicting for a no pet lease clause; Good luck with that.
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Old 06-04-2008, 10:23 AM   #42
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I keep reading threads like "your home is a money pit" / "your home is the best investment you'll ever make" and I have to say that, intuitively, I was leaning towards the money pit camp (perhaps because lately we've had to make a lot of costly repairs). But I had to be sure, so this morning I decided to sit down and using my Quicken data I crunched the numbers. And oh surprise! it's really not as bad as I thought!

We bought our house 3.5 years ago for $194,000 with 10% down. Realtors in the area have reported an average annual appreciation rate of 7% since early 2005. I conservatively estimate that my home would sell today for $240,000 (or about a 6.5% average annual appreciation rate. Also a bit low based on local comps).

So in the past 3.5 years the costs have been:
Closing costs: $2,604
Mortgage Interests paid: $30,842
Repairs: $20,344
Property taxes and homeowner insurance: $7,433
Total costs: $61,223

On the benefits side of the equation, we have (again over the past 3.5 years):
Cost of renting an identical house in the same location: $45,600
Tax savings (mortgage interest deduction): $7,710
Home Value Appreciation: $46,000
Total benefits: $99,310

So when taking all costs (I can think of) into consideration, still a gain a $38,087 (or about 20% of the home's purchase price), net of capital gain taxes. For an initial investment of $19,400 it's not bad!

Off course if I were to sell right now realtor commissions (about 6% of selling price or $14,400) would eat a sizeable portion of that gain. But still a good surprise!

Note: I assumed that utility costs would be identical whether I own or rent the house, so I did not include them.
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Old 06-05-2008, 03:23 AM   #43
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3.5 years is basically a flip in time frame . you pretty much are only talking about the greatest housing run up we had. you need a much longer time frame to draw any conclusion. lots more in taxes, interest, repairs, insurance to be paid ahead... in most areas rent is way lower than cost of ownership. by the time you would have paid that house off you would have paid 2 to 3x the price in mortgage interest alone. that mortgage deduction has to start after the standard deduction amount too...

3.5 years is kind of like buying in after the stock market debacle of 2000 and commenting how great the markets were where if you were in long term your returns were okay but your averages long term were way lower then someone just buying in catching a way above normal run up and not paying years worth of margin interest to get there.. make sense?
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Old 06-05-2008, 06:49 AM   #44
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FIREDreamer, our numbers are similar to yours: we paid about $194K for the house and it's worth about $240K. The one difference is that we've owned the house for 14 years. Our home value has not kept up with inflation.
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Old 06-05-2008, 07:22 AM   #45
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Mathjak,

It makes sense and I did not claim my case was typical. Off course individual results depend upon your local RE market, how much you pay in property taxes and insurance, how much work your home needs, whether you bought at the top of market or not, how long you stay in your house etc...

I was merely interested to see whether MY home had been a good "investment" so far or if it had been a money pit. I have a few things going for me where I live: very low property taxes and insurance, low cost of living (meaning repairs tends to cost less than elsewhere and people are not so interested in high-end finishes), historically a decent RE appreciation rate but certainly it's no CA, rents are high enough to be on par with cost of ownership (the cost of renting I mentioned is based on the going rental rate in my neighborhood, I didn't make it up).

The amount I quote under "repairs" include a new roof, new A/C unit, a brand new sewer line plus a number of other minor repairs (all done in the past year). Those are probably the costliest repairs you can have in a house and I don't expect to have to do those repairs again in quite a while. So I would expect that my repair costs will remain lower for the next few years at least. Mortgage interest payments are going to be lower as well with each passing year (and so will the tax savings), but in all likelihood the cost of renting will go up during that time. Of course property taxes and insurance will also go up. I also don't intend to stay in this house indefinitely (probably another 3-5 years max) so long term returns (stock market style) are irrelevant in my case. I sold my last house after only 3 years so 3.5 year is quite a record for me!

Finally yes, if I stayed in this house for 30 years, by the time I pay off the house I would have paid 2x or 3x the price in mortgage interests alone, but that should be offset by the cost of renting during that period. Right now I pay less than $10,000 a year in mortgage interests ($13,000 a year including principal repayment) but the cost of renting would actually be close to $13,000 a year. In 2018, I may pay only $7500 in mortgage interests but I bet that the cost of renting will be higher then than it is now. So barring a huge hike in taxes/insurance or major unforeseen repairs, the balance sheet should become more favorable with the years, not less.

Am I missing something?
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Old 06-05-2008, 07:45 AM   #46
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Hey, results will vary house to house. My neighbor is upside down having bought at the peak in 2005 and he foolishly dumped 100k into it AFTER over paying. We're still sitting on some equity having bought 10+ years earlier (even with a rehab effort).

Much like the QQQ's .... still down over 50% from the peak 8+ years later.
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Old 06-06-2008, 09:10 AM   #47
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Originally Posted by LEX View Post
On old friend once advised: "If it flies, floats or wears a skirt, rent it."
Maybe your friend was just paraphrasing Felix Dennis who was written up in Business Week (although his quotation was a little clearer in not eliminating Scotsmen).

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Old 06-06-2008, 09:20 AM   #48
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Originally Posted by FIREdreamer View Post
So when taking all costs (I can think of) into consideration, still a gain a $38,087 (or about 20% of the home's purchase price), net of capital gain taxes. For an initial investment of $19,400 it's not bad!

Off course if I were to sell right now realtor commissions (about 6% of selling price or $14,400) would eat a sizeable portion of that gain. But still a good surprise!
So based on your "all in" analysis and including disposition costs to compare apples and apples, you are saying that you invested $19,400 and after three years can see a gross out of $38,087-$14400=$23,687 for a net of $23,687-$19,400=$4,287 producing a total return of 22% and an annual return of 7.4%.

Do you think the $19k might have done better in another risky equity investment?
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